Question

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $5.0 million. The machinery can be sold to the Romulans today for $7.2 million. Klingon’s current balance sheet shows net fixed assets of $3.8 million, current liabilities of $810,000, and net working capital of $140,000. If all the current accounts were liquidated today, the company would receive $925,000 cash.

What is the book value of Klingon’s total assets today?

What is the sum of the NWC and market value of fixed assets?

Answer 1

Answer:

1. The book value of Klingon’s total assets = $4,750,000.

2. The sum of the NWC and market value of fixed assets = $8,125,000.

Explanation:

Requirement 1

We know,

The book value of Klingon’s total assets = Net fixed assets + current asset

Given,

Net fixed assets = $3,800,000 million

Again we know,

Net working capital = current asset - current liabilities

Current asset = $140,000 + $810,000

Current asset =  $950,000

Putting the values into the formula, we will get

The book value of Klingon’s total assets = Net fixed assets + current asset

The book value of Klingon’s total assets = $3,800,000 + $950,000

The book value of Klingon’s total assets = $4,750,000

Requirement 2

We know,

The sum of the net working capital (NWC) and the market value of fixed assets = liquidated net working capital + market values of net fixed assets.

Given,

Liquidated net working capital = $925,000

Market values of net fixed asset = $7,200,000

Putting the values into the formula, we will get

The sum of the NWC and market value of fixed assets = liquidated net working capital + market values of net fixed assets.

The sum of the NWC and market value of fixed assets = $925,000 + $7,200,000.

The sum of the NWC and market value of fixed assets = $8,125,000